Tuesday, August 17, 2010

I was with a client recently looking for a home for her son to rent.Based on the landlord's requirements, the son didn't qualify on his own financially to rent the home so my client had to either sign as a guarantor or they had to find another home to rent.

The landlord said that financially his renter's income had to be 3 times the monthly rent and if the renter used a co-signer/guarantor the income of the co-signer/guarantor had to be 4 times the monthly rent. Why? In addition to the co-signer/guarantor's current expenses, he/she would now be legally bound to additional expenses on this other home if the renter was unable to pay the rent.

A co-signer/guarantor is taking on more debt so his/her debt to income ratio just increased. Similary,in a home purchase,when a buyer needs another person co-signs on the loan, the person co-signing is taking on a further obligation which will impact his/her credit/purchasing power the next time he/she is considering taking out a loan/refinancing/purchasing another home.

So a landlord might consider enhancing the rental qualifications when a tenant needs a co-signer. A person co-signing/being a guarantor should think it through whether taking on this additional financial obligation is going to prevent him/her from getting a loan in the near future that he or she would have qualified for (if he or she didn't take on being a co-signer/guarantor.

Thinking of buying,selling or renting a home? If you are renting,also consider if you could buy a home with the monthly rent you are paying.Let me know because I am here to help.